Alternative Investment Funds Comparative Guide

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1 Legislative and regulatory framework

1.1 In broad terms, which legislative and regulatory provisions govern alternative investment funds in your jurisdiction?

The regulatory landscape for alternative investment funds (AIFs) in India is as follows:

• The domestic jurisdiction (India except Gujarat International Fin-Tec City ('GIFT City') is governed by the Securities and Exchange Board of India ('SEBI') pursuant to the SEBI (AIF) Regulations, 2012 ('AIF Regulations') and circulars, as well as the guidelines issued thereunder, which apply to AIFs established and operating within India (other than GIFT City).
• The International Financial Services Centres ('IFSC') in GIFT City is governed by the International Financial Services Centre Authority (IFSCA) pursuant to the IFSCA (Fund Management) Regulations, 2025 ('FM Regulations') and circulars, as well as the guidelines issued thereunder, which apply to AIFs set up within GIFT City.

In addition, SEBI AIFs and GIFT City AIFs are subject to additional frameworks, including:

• other regulations, directives and guidelines issued by the regulators covering registered intermediaries (ie, AIFs) which, among other things, cover:
• • fit and proper criteria;
  • know-your-customer and anti-money laundering (AML) obligations; and
  • prevention of insider trading;
• exchange controls related rules, regulations and guidelines issued under the Foreign Exchange Management Act, 1999 ('FEMA'), which deal with the subscription, purchase and transfer of Indian equity, debt and hybrid securities as well as overseas investments by Indian entities. GIFT City, being an IFSC, is deemed 'foreign territory' for FEMA purposes. Hence, outbound investments (by Indian residents into a GIFT AIF) and inbound investments (by a GIFT AIF into Indian securities) are subject to FEMA; and
• the Income Tax Act, 1961 ('ITA'), which covers indirect taxes and applicable rules.

1.2 Do any special regimes or provisions apply to specific types of alternative investment funds?

AIF Regulations:

AIFs are broadly classified as Category I, Category II and Category III (see question 2.1). Other special categories notified by SEBI include the following:

• Angel funds: A sub-category of Category I AIFs, raising capital from angel investors.
• Special situation funds: Category I AIFs focused on special situation assets; may act as resolution applicants under the Insolvency and Bankruptcy Code, 2016.
• Corporate debt market development fund: Units are offered exclusively to asset management companies registered under the SEBI (Mutual Funds) Regulations, 1996.

Additionally, SEBI has carved out a special framework for large-value funds ('LVFs') under the AIF Regulations. LVFs are AIFs in which each investor (excluding the manager, sponsor, employees and directors):

• is an accredited investor (duly certified by an accreditation agency); and
• invests at least INR 700 million in the AIF.

LVFs are subject to various exemptions under the AIF Regulations.

FM Regulations:

Under the FM Regulations, AIFs fall could be launched under two broad categories:

• venture capital schemes; and
• restricted schemes (which cover Category I, Category II and Category III AIFs).

Retail schemes under the FM Regulations cover mutual funds and ETFs. The IFSCA also covers environmental, social and governance funds and investment trusts (real estate investment trusts and infrastructure investment trusts) under the FM Regulations. Please see question 2.1.

1.3 Do the legislative and regulatory provisions governing alternative investment funds have extra-territorial reach?

SEBI's powers: Pursuant to the AIF Regulations, SEBI has jurisdiction over:

• AIFs;
• their investment managers, sponsors and trustees; and
• other entities regulated by it that offer services to an AIF (eg, custodians, merchant bankers, investment advisers).

Under the Code of Conduct and other provisions of the AIF Regulations, specific obligations are imposed on:

• individuals such as directors/partners of the investment manager, trustees and key management personnel of the manager; and
• investment committees.

SEBI has wide powers under the SEBI Act to pass orders against the above entities, including their directors/shareholders, irrespective of their country of incorporation and/or residency.

IFSCA's powers:

Under the FM Regulations, the IFSCA has jurisdiction over:

• the fund management entity;
• the principal officer;
• key managerial personnel;
• trustees; and
• custodians.

It has wide powers under the IFSCA Act to pass orders against the above entities, including their directors/shareholders, irrespective of their country of incorporation and/or residency.

1.4 Are any bilateral, multilateral or supranational instruments in effect in your jurisdiction of relevance to alternative investment funds?

Key bilateral, multilateral and supranational instruments relevant for AIFs in India include the following.

Bilateral investment treaties ('BITs') and double taxation avoidance agreements ('DTAAs'): India has signed several BITs that provide for:

• investment protection;
• market access; and
• arbitration for dispute resolution.

India has DTAAs with 94 countries, providing clarity on issues such as:

• contracting parties' right to tax;
• concessional tax rates; and
• underlying tax credits.

In cross-border AIF structures (with offshore feeders and/or offshore investors), protections and privileges under the BITs and DTAAs become significant for enhancing or protecting investors' returns.

Multilateral instruments:

• Financial Action Task Force ('FATF') recommendations: As an FATF member, India's AML and countering the financing of terrorism ('CFT') framework align with FATF standards. AIFs – including those in the IFSC – must comply with these robust AML/CFT requirements, especially when accepting foreign investors or making overseas investments.
• Organisation for Economic Co-operation and Development ('OECD') Common Reporting Standard ('CRS') and automatic exchange of information: India, a signatory to the OECD's CRS, participates in the global automatic exchange of financial account information. AIFs and their managers must comply with CRS reporting, facilitating the exchange of foreign investor information and enhancing tax transparency.
• Base Erosion and Profit Shifting ('BEPS') Action Plan: India has implemented several BEPS measures, which become relevant in relation to the tax assessment of a multi-jurisdictional structure comprising fund managers, fund vehicles and investee companies.

Supranational instruments:

• United Nations Convention against Corruption ('UNCAC'): India is a party to the UNCAC, which influences domestic anti-corruption and AML laws applicable to AIFs and their managers.
• International Organization of Securities Commissions ('IOSCO'): SEBI is an IOSCO member and India's securities regulations – including those for AIFs – are broadly aligned with IOSCO principles, facilitating cross-border cooperation and information sharing.

1.5 Which bodies are responsible for regulating alternative investment funds in your jurisdiction? What powers do they have?

Onshore AIFs: SEBI is the principal regulator for AIFs set up in onshore India, and it has the power to:

• grant approvals for the registration of AIFs and regulate and monitor compliance during the tenure of the AIF, including winding up and the surrender of licences;
• conduct inspections and investigations and take enforcement action (including imposing penalties and suspending or cancelling a licence) for any breach under the AIF Regulations, other SEBI regulations and the SEBI Act. SEBI also has wide powers in relation to search and seizure;
• enter into settlement arrangements with regulated entities; and
• issue circulars, guidelines, clarifications and amendments to relevant SEBI regulations.

GIFT AIFs: The IFSCA is the unified regulator for schemes and fund management entities set up in the IFSC (offshore India). Its powers and functions in relation to fund management entities (FMEs) and schemes set up by FMEs in GIFT City are similar to those set out above for SEBI.

1.6 To what extent do the regulators cooperate with their counterparts in other jurisdictions?

Please see question 1.4.

2 Form and structure

2.1 What types of alternative investment funds are typically found in your jurisdiction?

Domestic alternative investment funds (AIFs): AIFs in India are classified into three broad categories:

• Category I AIFs: AIFs which invest in startups, early-stage ventures, social ventures, small and medium-sized enterprises (SMEs), infrastructure or sectors deemed socially/economically desirable by the government or regulators, including:
• • venture capital funds;
  • SME funds;
  • social impact funds;
  • infrastructure funds; and
  • special situation funds.
• Category II AIFs: AIFs that:
• • do not fall under Category I or III; and
  • do not undertake leverage or borrowing except as permitted by the AIF Regulations.
• They include private equity funds and debt funds without government or regulatory incentives.
• Category III AIFs: AIFs which employ diverse or complex trading strategies and leverage (including derivatives). They include:
• • hedge funds;
  • funds aimed at short-term returns; and
  • other open-ended funds without government or regulatory incentives.

Additionally, as mentioned in question 1.2, angel funds, special situation funds and corporate debt market development funds can be launched as provided under Regulation 19 of the AIF Regulations.

GIFT AIFs: Venture capital schemes (VCSs) primarily invest in unlisted securities of startups and emerging or early-stage ventures. The restricted scheme covers Category I, II and III AIFs. Similar to the domestic AIF regime, Category I AIFs invest in:

• startups;
• early-stage ventures;
• social ventures;
• SMEs; and
• infrastructure funds; or other sectors deemed socially/economically desirable, including environmental, social and governance (ESG) funds and special situation funds.

Category III AIFs, both open and close ended, invest in diverse or complex trading strategies. Category II is the residual category.

Based on the type of fund to be managed, the fund management entity (FME) may decide to apply for registration as:

• an authorised FME;
• a registered FME (non-retail); or
• a registered FME (retail).

2.2 How are these alternative investment funds typically structured?

Under the AIF Regulations, AIFs may be established or incorporated in India in the form of:

• a trust;
• a company;
• a limited liability partnership (LLP); or
• a body corporate.

As per the FM Regulations, a VCS or restricted scheme may be launched as:

• a company;
• an LLP: or
• a trust.

However, the trust structure is the most common for AIFs, in comparison to LLPs and companies, in both the domestic and IFSC regimes, due to:

• the operational flexibility that it affords; and
• the straightforward compliance requirements.

For both SEBI AIFs and GIFT City AIFs:

• trusts are established under the Indian Trust Act, 1882;
• companies are established under the Companies Act, 2013 ('Companies Act'); and
• LLPs are established under the Limited Liability Partnership Act, 2008.

2.3 What are the advantages and disadvantages of these different types of structures?

Trust structure:

• Advantages:
• • Operational flexibility as not subject to prescriptive obligations, no solvency tests or capital maintenance requirements, capital calls and redemptions is easy.
  • Simplicity and speed as setting up a trust does not involve complex paperwork.
  • Confidentiality regarding the identity of beneficiaries and trust terms.
• Disadvantages:
• • No separate legal personality; the trust is represented by the trustee, which requires the appointment of a trustee.
  • Dependence on the competence and integrity of the trustee and its team.
  • Perceived complexity, as some international investors may be less familiar with Indian trusts than corporate vehicles.

Company structure:

• Advantages:
• • Separate legal personality and longer duration of tenure.
  • Familiarity for international investors, as global investors are accustomed to corporate vehicles.
  • Established corporate governance norms under the Companies Act, appealing to institutional and international investors.
• Disadvantages:
• • Higher compliance burden under the Companies Act, including board and shareholder meetings, filings and audits.
  • Capital maintenance requirements and restrictions on classes of share capital.
  • Distribution limitations due to restrictions on dividends, capital reductions and redemption.
  • Higher costs, due to the additional compliance burden under the Companies Act.

LLP structure:

• Advantages: The LLP structure has similar advantages to a corporate structure, plus added flexibility in relation to capital structuring and distributions. Cost wise, it is less burdensome than a company.
• Disadvantages:
• • Regulatory compliance is higher than for trusts, though less onerous than for companies.
  • It is not commonly used for AIFs in India, with only a small fraction of funds adopting this structure.
  • Exchange control limitations apply to LLPs with non-resident partners in relation to downstream investments.

2.4 What are the most widely used alternative investment funds structures used in your jurisdiction?

Under both the domestic and offshore regimes, most AIFs are structured as trusts. This preference is evident from market data confirming that, as of August 2024, out of 1,382 AIFs registered with SEBI in India:

• 1,348 had been set up as trusts;
• just 31 had been set up as LLPs; and
• a mere three had been set up as companies.

This trend is mirrored in the IFSC, where the trust structure is also the most widely adopted form for AIFs.

Key reasons for the prevalence of trusts include the following:

• Operational flexibility: Trusts are not subject to the capital maintenance, solvency or redemption restrictions that apply to companies, allowing for easier capital calls, redemptions and distributions.
• Simplicity and cost-effectiveness: Establishing a trust is generally more straightforward and less expensive than setting up a company or LLP.
• Confidentiality: Trust deeds offer a higher degree of confidentiality compared to company documents, where shareholder information is publicly available.
• Tax efficiency: In addition to the specific tax transparency regime conferred on Category I and II AIFs, the trust structure benefits from pass-through status under general provisions (subject to conditions).

2.5 Is there a preferred alternative fund structure for particular investment strategies (ie, hedge fund/private credit/private equity)?

The trust structure is the default for all strategies in both onshore India and the IFSC. The choice of category of AIF depends on various factors, including:

• the investment strategy;
• the nature of the investment opportunities;
• investment restrictions; and
• the exit strategy and horizon.

Private equity funds – which generally invest in illiquid assets and have a defined investment and exit timeline – typically prefer a close-ended trust structure, set up as a Category II AIF. Debt funds are set up as Category II AIFs, as this affords them the maximum flexibility to make a wide spectrum of debt investments. In contrast, hedge funds – which frequently engage in trading of liquid securities, use leverage and hedging strategies and offer investors the flexibility to enter and exit the fund at various intervals – opt for an open-ended structure and are set up as Category III AIFs. The AIF Regulations and the FM Regulations also envisage special provisions for specific strategies such as:

• ESG funds;
• infrastructure funds; and
• special situation funds.

2.6 Are alternative investment funds required to have a local administrator appointed?

AIF Regulations: Under the AIF Regulations, there is no mandatory requirement for AIFs to appoint a local administrator. The investment manager has the flexibility to in-source or outsource this function, as non-core functions can be outsourced.

FM Regulations: Under the FM Regulations, the FME must ensure that, before the launch of any scheme, a fund administrator registered with the IFSCA is appointed in case the FME is unable to undertake such activities in-house.

2.7 Are alternative investment funds required to appoint a local custodian to hold assets? If yes, what legal protections are in place to protect the alternative investment fund's assets?

AIF Regulations: Under the AIF Regulations read with the Master Circular for AIFs dates May 7, 2024 issued by SEBI, every AIF's sponsor or manager must appoint a SEBI-registered custodian responsible for:

• the safekeeping of the AIF's securities; and
• the provision of SEBI-specified disclosures and reports.

For Category III AIFs, the custodian must also hold securities and goods received in physical settlement against commodity derivatives. If the custodian is an associate of the manager or sponsor, the following conditions must be met:

• The manager or sponsor must have net worth of at least INR 200 billion at all times.
• At least 50% of the custodian's directors must not represent the manager or sponsor, or their associates.
• The custodian and the manager or sponsor:
• • must not be subsidiaries of each other;
  • must not have common directors; and
  • must both sign an undertaking to act independently in dealings of the AIF's schemes.

FM Regulations: FMEs are mandated to appoint an independent custodian for:

• open-ended restricted schemes; and
• all schemes with assets under management exceeding $70 million.

However, exceptions apply to fund-of-funds schemes where the underlying schemes themselves have independent custodians appointed.

The appointed custodian must be based in the IFSC. Where securities are issued in a foreign jurisdiction mandating local custodianship, the FME may appoint a custodian in that foreign jurisdiction, provided that it:

• is regulated by the local financial sector regulator; and
• facilitates necessary information sharing with the IFSCA when required.

2.8 Is it possible for an alternative investment fund to redomicile to your jurisdiction? If yes, what considerations are required and what are the steps involved?

Onshore India: Indian laws do not permit the re-domiciliation of funds into domestic jurisdiction.

Offshore India: The re-domiciliation of funds into the IFSC is permitted under the FM Regulations. The Finance Act, 2021 amended the ITA to enable the tax-neutral relocation of offshore funds to the IFSC for both the fund and its investors. These provisions apply when assets of the 'original fund' are 'relocated' to a 'resultant fund' in the IFSC. The ITA defines these terms as follows:

• 'Original fund': A fund established, incorporated or registered outside India that collects funds from its members and meets the following conditions:
• • It is not a person resident in India;
  • It is a resident of a country with which India has a tax treaty;
  • It is subject to investor protection regulations in its country of establishment or incorporation; and
  • It fulfils other prescribed conditions.
• 'Resultant fund': A fund established or incorporated in India as a trust, company or LLP which:
• • has a certificate of registration as an AIF and is regulated by SEBI or the IFSCA; and
  • is located in the IFSC.
• 'Relocation': The transfer of assets of the original fund to a resultant fund on or before 31 March 2030, where consideration is discharged by the allotment of shares, units or interests in the resulting fund to:
• • shareholders, unit holders or interest holders of the original fund in the same proportion as previously held, in lieu of their original holdings; or
  • the original fund, in the same proportion as above, where share interests are not issued by the resultant fund to its holders.

3 Authorisation

3.1 Must alternative investment funds be authorised or licensed in your jurisdiction?

Onshore India: No entity may operate as an alternative investment fund (AIF) unless it is registered with SEBI. Hence, any pooling vehicle with a defined investment strategy that meets the definition of an 'AIF' under the AIF Regulations must mandatorily seek approval from SEBI. Certain vehicles are exempt from this registration requirement, including:

• family trusts;
• employee stock ownership plan trusts;
• employee welfare trusts; and
• securitisation trusts.

Offshore India: Under Regulation 3(1) of the Fund Management Regulations, an entity that wishes to undertake the business of fund management in the IFSC cannot commence operations in GIFT City unless it has obtained a certificate of registration from the IFSCA to operate as a fund management entity (FME). Further, a registered FME (retail/non-retail) or authorised FME can launch an AIF as a restricted scheme in accordance with the FM Regulations.

3.2 If so, what criteria must be satisfied to obtain authorisation? Do any restrictions apply in this regard?

Onshore India: SEBI's evaluation process of each AIF applicant comprises the following criteria:

• The sponsor and manager must be 'fit and proper' persons – a status determined by SEBI based on:
• • integrity;
  • competence;
  • financial soundness;
  • the absence of an adverse regulatory history; and
  • other factors prescribed under the SEBI (Intermediaries) Regulations, 2008.
• The constitutional documents of the AIF (eg, trust deed) and private placement memorandum ('PPM') must be in order. If not, SEBI will provide comments which must be addressed to the satisfaction of the regulator.
• The key investment team must meet SEBI's qualification and certification requirements.
• The manager must demonstrate that it has adequate infrastructure and manpower to carry out its activities effectively; while the sponsor must demonstrate that it has the financial capability to make the sponsor commitment and maintain it as a continuing interest in the AIF.
• SEBI has prescribed the format of the PPM for non-large value funds. The PPM must:
• • contain all necessary information and make adequate disclosures, as stipulated under the AIF Regulations; and
  • follow the prescribed format.
• Additional declarations and information (eg, the latest audited financial statements of manager and sponsor, disclosure of disciplinary history) form part of the application pack, along with the prescribed application form (Form A).

Offshore India: Under the FM Regulations, the FME must first be registered with the IFSCA. Under the regulations, qualification, net worth and other criteria (eg, the board of directors must include independent directors) apply to each category of FME (see question 4.4). Once the FME is registered, it can launch a scheme by filing the necessary paperwork with the IFSCA. The IFSCA will scrutinise the application for a venture capital scheme/restricted scheme to ensure that it meets the relevant criteria. The IFSCA has not prescribed any PPM format. There is greater flexibility in relation to terms of offering and disclosures for AIFs set up in GIFT City.

3.3 What is the process for obtaining authorisation of alternative investment funds and how long does this usually take?

AIF Regulations: As a first step, the entity to be registered as an AIF must be set up under the applicable law. Then, the applicant must:

• obtain a permanent account number (PAN); and
• file the application via the SEBI Intermediary Portal, along with:
• • the filing fees;
  • all necessary documents (including the PPM and its constitution document); and
  • other information/declarations.

With respect to non-large value funds, the PPM must be accompanied by a due diligence certificate from a SEBI-registered merchant banker and trustee confirmation to ensure regulatory compliance. SEBI will review the application and may:

• request additional information; or
• suggest changes to the constitution document and/or the PPM.

Once SEBI has confirmed that the application is in order, the applicable registration fee plus 18% GST must be paid through the SEBI Intermediary Portal. The fees are as follows:

• INR 1 million for Category I and II AIFs; and
• INR 1.5 million for Category III AIFs.

FM Regulations: To launch a scheme in the IFSC, an authorised/registered FME must first obtain registration with the IFSCA as a registered FME (retail/non-retail) or authorised FME, as described in question 4.4. FMEs must submit a common application form (CAF) in the prescribed format, along with any additional information required by the IFSCA, through the Single Window IT System ('SWIT') portal before launching the scheme. A one-off application fee must be paid on the SWIT Portal prior to seeking registration of a scheme, as follows:

• $7,500 for Category I AIFs;
• $15,000 for Category II AIFs; and
• $22,500 for Category III AIFs.

The FME must then file an application for the scheme with the IFSCA, including:

• a PPM; and
• required declarations/disclosures, as per the FM Regulations and other circulars issued by the IFSCA.

4 Management and advisory relationships

4.1 How are alternative investment fund managers and advisers typically structured in your jurisdiction?

AIF Regulations:

• AIF managers: In India, AIFs managers are most commonly structured as companies or limited liability partnerships (LLPs); less frequently, they may be individuals. The choice of structure is influenced by considerations such as:
• • liability;
  • tax efficiency;
  • operational flexibility; and
  • shareholder/promoter preferences.
• The advantages and disadvantages of different structures are outlined in question 2.2.
• Adviser: If an entity wishes to provide investment advisory services to Indian residents, it must obtain registration as an investment adviser under the SEBI (Investment Advisers) Regulations, 2013. Similar to AIF managers, investment advisers are also typically structured as companies or LLPs; although individuals are also permitted to seek registration as investment advisers.

FM Regulations:

• Fund management entities (FMEs): In the IFSC, FMEs may be structured as:
• • companies or LLPs; or
  • a branch of the parent of the FME.
• Similar to onshore India, the company structure is mostly preferred, followed by an LLP or branch. Depending on the proposed objective and satisfaction of the net worth criteria specified by the IFSCA, FMEs may be registered as:
• • an authorised FME, which can launch venture capital schemes; or
  • a registered FME (non-retail/retail), which can launch:
  • • restricted schemes (ie, Category I, II or III AIFs); or
    • retail schemes.
• Adviser: If any entity wishes to provide investment advisory services to clients, it must obtain registration as an investment adviser under the IFSCA (Capital Market Intermediaries) Regulations, 2025. Investment advisers in the GIFT City may be structured as a company, an LLP or a branch of the parent of the FME, with a company or LLP being the preferred structure.

4.2 What are the advantages and disadvantages of these different types of structures?

In both onshore India and offshore India, the structuring of an AIF manager/adviser carries significant regulatory, tax and commercial implications:

• Companies offer limited liability for shareholders, perpetual succession and strong corporate governance, and can access capital markets more easily, but face extensive regulatory compliance and higher administrative costs.
• LLPs provide operational flexibility, tax efficiency and limited liability for partners, appealing to fund managers seeking less rigid governance and lower compliance burdens; though they may struggle to raise public capital and the legal form is less familiar to some investors, especially offshore investors.
• Individual managers are rare, due to unlimited liability and lower credibility.
• Bodies corporate are used in specific circumstances but are also uncommon.

For the respective advantages and disadvantages of each structure, please see questions 2.2 and 4.1.

4.3 Must alternative investment fund managers be authorised or licensed in your jurisdiction?

Onshore India: SEBI does not mandate a separate licence for AIF managers. However, the manager will be subject to evaluation and scrutiny when the application for registration of the AIF is reviewed, including in relation to:

• the applicability of SEBI's 'fit and proper' criteria under the SEBI (Intermediaries) Regulations, 2008;
• the fulfilment of eligibility criteria for the key investment team;
• evaluation of its past experience, infrastructure capabilities, ownership and control; and
• the regulatory and disciplinary history of the controlling entities, group companies and associates of the manager.

Hence, SEBI clarified that AIF managers will be considered as 'deemed regulated entities' in its informal guidance issued in the matter of Ace Lansdowne Investment Services LLP.

Offshore India: Any entity that wishes to undertake the business of fund management in GIFT City must obtain a certificate of registration from the IFSCA to operate as an authorised FME or a registered FME (retail or non-retail).

4.4 If so, what criteria must be satisfied to obtain authorisation? Do any restrictions apply in this regard?

Onshore India: As set out in question 4.3, while AIF managers under the AIF Regulations do not require a separate licence/authorisation from SEBI, these entities are subject to:

• disclosure requirements;
• requirements to employ minimum key management personnel and a compliance officer; and
• various confirmations required by SEBI during the application process for registration of the AIF.

Offshore India: FMEs in GIFT City must obtain registration as an authorised FME or a registered FME (retail/non-retail) upon submission of the common application form (CAF) to the IFSCA (see question 4.5) and fulfilment of the following conditions:

• The FME must meet the following minimum net worth requirements:
• • $500,000 for registered FMEs (non-retail); and
  • $1 million for registered FMEs (retail).
• It must have:
• • a sound track record; and
  • a general reputation for fairness and integrity in all its business transactions.
• It must employ key managerial personnel who:
• • possess a relevant professional qualification, postgraduate degree or postgraduate diploma (minimum one year) in finance, law, accountancy, business management or similar subjects, or other qualifications specified by the IFSCA, from a recognised university, institution or association; and
  • have at least five years' experience (for a registered FME) in securities market or financial product activities.
• The relevant key managerial person should be based in the IFSC.
• Its principal officers, directors/partners/designated partners, key managerial personnel and controlling shareholders must be 'fit and proper', with no record of economic offences or regulatory violations.
• It must have adequate infrastructure (office space, equipment, communication facilities and manpower) to discharge its activities under the FM Regulations and related circulars.

4.5 What is the process for obtaining authorisation and how long does this usually take?

Onshore India: As mentioned in question 4.3, there is no separate licensing regime for AIF managers which is distinct from registration of the AIF.

Offshore India: The authorisation process for an FME begins with the submission of a common application form (CAF) in the IFSCA-prescribed format through the SWIT portal, along with the requisite confirmations, information and declarations, such as:

• its certificate of incorporation;
• its charter documents/LLP agreement/trust deed;
• its PAN;
• its goods and services tax identification number;
• its legal entity identifier;
• the last three years' audited financials or, for new entities, the promoters'/partners' income tax returns for new entities;
• a net worth certificate;
• a business plan and profile;
• the shareholding structure up to the ultimate beneficial owner, with know-your-customer documents and brief profiles of key persons;
• a letter of approval issued by the relevant department of Government of India;
• proof of fee payment; and
• board resolution/authorisation.

A one-off application fee of $2,500 and an annual fee of $2,000 are payable through the SWIT portal. Additionally, a one-off registration fee of $7,500 for registered FMEs (non-retail) or $10,000 for registered FMEs (retail) is required at registration. The IFSCA:

• will review the application;
• may seek clarifications or additional information; and
• may conduct interviews or inspections.

Upon satisfaction, the IFSCA will issue a certificate of registration.

4.6 What other requirements or restrictions apply to alternative investment fund managers and advisers in your jurisdiction?

Onshore India: Apart from the requirements set out in question 4.4, AIF managers must comply with the following broad obligations:

• Maintain a continuing interest in the AIF (fulfilled by the sponsor or by the manager, not through the waiver of management fees) and disclose such investment to investors;
• Ensure compliance with the applicable laws and regulations;
• Appoint a custodian and independent valuers;
• Maintain relevant records for the AIF for five years;
• Submit a compliance test report to the sponsor and trustee within the stipulated timeline;
• Act in a fiduciary capacity and implement a robust conflicts of interest policy;
• Ensure that timely reports and information are provided to investors;
• Have minimum key personnel employee(s) and appoint a compliance officer for each AIF; and
• Abide by the prescribed code of conduct.

Offshore India: Key obligations for an FME are summarised in question 4.4. Additionally, an FME (or its associate) must have a continuing interest as follows:

• for close-ended schemes, at least 2.5% and not more than 10% of the corpus (or at least $750,000 and not more than 10% if the corpus exceeds $30 million); and
• for open-ended schemes, at least 5% and not more than 10% of the corpus (or at least $1.5 million and not more than 10% if the corpus exceeds $30 million).

This does not apply to funds that relocate to GIFT City. The FME's contribution can be exempted in certain situations.

4.7 Can an alternative investment fund manager impose restrictions on the issue, redemption or transfer of interests in the funds under management?

Onshore India: AIF managers may impose restrictions on the issue, redemption or transfer of units, subject to the fund documents and the AIF Regulations. As Category I and Category II AIFs are close ended, the manager has discretion regarding the issuance and redemption of units, subject to appropriate disclosures. Category III AIFs may be open or close ended. If open ended, ongoing redemption is permitted as per the fund documents, subject to gates and caps. All AIFs must ensure that the units are issued in dematerialised form.

Offshore India: The issue, transfer and redemption of units of AIFs in GIFT City operate similarly to onshore India, whereby the redemption of units of close-ended restricted schemes is typically undertaken at the end of the tenure of the AIF or on the exit of the underlying investments, as per the terms of the fund documents of the AIF. The subscription and redemption of units of Category III AIFs set up as open-ended funds may be undertaken on an ongoing basis or as per any gates, caps and application of suspension periods included in the terms set out in the fund documents.

4.8 Are there any requirements regarding the ownership of alternative investment fund managers? If so, please provide details.

Onshore India: Below are key considerations applicable to the manager and sponsor of an AIF:

• Ownership and control of the manager/sponsor: As per the exchange control regulations, if the manager and/or sponsor is foreign owned or controlled, investments by the AIF are treated as foreign investments and must comply with relevant conditions.
• PN3 compliance: Foreign investments by entities or beneficial owners of such entities based in countries that share a land border with India ('restricted countries' that is, China, Hong Kong, Bhutan, Nepal, Myanmar, Pakistan, Bangladesh and Afghanistan –) require prior government approval which are referred to as the 'PN3 requirements', including for any direct or indirect transfer of ownership.
• 'Skin in the game' criterion: The manager and/or sponsor of an AIF must make a minimum investment in the AIF.

Offshore India: In GIFT City, while there are no explicit regulatory requirements regarding ownership of the FME, the FM Regulations mandate:

• a minimum net worth for the FME; and
• a minimum contribution to be made by the FME.

(See question 4.6.)

4.9 Can alternative investment fund managers delegate to third-party investment managers or investment advisers? If yes, please provide details of any specific requirements.

Onshore India: AIF managers in India are permitted to delegate certain functions to third-party managers or advisers, provided that such delegation is carried out in accordance with the SEBI Guidelines CIR/MIRSD/24/2011 on Outsourcing of Activities dated 15 December 2011. As per the guidelines, AIF managers are not permitted to outsource core and critical business functions, such as:

• investment management;
• risk management; and
• compliance oversight.

Only non-core, ancillary or support functions may be outsourced; and even then, the manager of the AIF remains ultimately responsible for all such activities.

Offshore India: The IFSCA has introduced the 'third-party fund management' framework, allowing external fund managers to launch and manage restricted schemes via FMEs in the IFSC without a physical presence in the jurisdiction. The third party must:

• be a regulated entity in India, the IFSC or a foreign jurisdiction with appropriate authorisation for fund or portfolio management; and
• meet the IFSCA's 'fit and proper' criteria and experience and resource requirements.

The FME:

• must:
• • obtain the IFSCA's authorisation for such delegation; and
  • maintain an additional net worth of $500,000; and
• may only manage restricted schemes with a corpus not exceeding $50 million under this arrangement.

The FME remains fully responsible and liable for all acts and omissions of the third-party manager. It must:

• appoint a dedicated principal officer for each delegated scheme;
• ensure robust risk management;
• maintain operational independence and segregation of funds; and
• provide detailed disclosures in the PPM regarding:
• • the third party;
  • the division of responsibilities; and
  • conflict-of-interest mitigation.

4.10 Can alternative investment fund manager provide investment management services to clients other than alternative investment funds? If yes, do any additional requirements apply?

Onshore India: Yes, AIF managers in India may provide investment management or advisory services to clients other than AIF investors on matters other than the investment made by such investors in the AIFs managed by the AIF manager, such as portfolio management services or investment advisory services. However, the AIF manager must obtain relevant registration as a 'portfolio manager' and/or an 'investment adviser' under the SEBI (Portfolio Managers) Regulations, 2020 or the SEBI (Investment Adviser) Regulations, 2013, respectively, prior to undertaking such activity. The AIF manager must:

• ensure that there is no conflict of interest between its AIF activities and other activities; and
• maintain an arm's-length relationship between its various activities.

Separate accounts, compliance systems and reporting mechanisms must be maintained in order to ensure transparency and compliance with the regulatory requirements. Adherence to the prescribed code of conduct and the advertisement code, under the applicable regulations is also critical.

Offshore India: An FME registered with the IFSCA under the FM Regulations is permitted to:

• provide other services, including portfolio management services or investment advisory services, to clients other than AIF investors; and
• provide AIF investors with services that are unrelated to their investments in the AIF.

However, the FME must:

• comply with relevant requirements under the IFSCA (Capital Market Intermediaries) Regulations, 2025 ('CMI Regulations') and circulars issued thereunder; and
• obtain registration with the IFSCA prior to undertaking such additional services.

5 Marketing

5.1 Is the marketing of alternative investment funds subject to authorisation in your jurisdiction?

Onshore India: The SEBI does not regulate the distribution of alternative investment funds (AIFs) in India. However, under the AIF Regulations, AIFs are permitted to raise funds solely through private placement. Hence, public marketing or solicitation is prohibited. The AIF Regulations also specify that an AIF cannot have more than 1,000 investors. Domestic pools of capital such as banks and insurance companies are subject to restrictions on investments in AIFs and these restrictions must be adhered to when raising funds from such investors.

AIFs can engage onshore or offshore placement agents. Typically, placement fees and expenses are borne by the manager. SEBI has also imposed an obligation on AIFs to have a 'direct plan' option for investors. This direct plan shall not be subject to a distribution fee/placement fee. AIFs must disclose any distribution fee/placement fee to investors at the time of on-boarding. Category I and II AIFs are permitted to pay up to one-third of total distribution fee/placement fee on an upfront basis, with the remainder on an 'equal trail' basis, (in equal instalments over the tenure of the AIF).

Offshore India: In GIFT City, there are similar private placement restrictions on the placement or offer of units of schemes to any investor. Fund management entities (FMEs) can:

• undertake the distribution of the scheme without obtaining a separate registration/license from the IFSCA; or
• engage a registered distributor.

5.2 If so, what criteria must be satisfied to obtain authorisation? Do any restrictions apply in this regard?

Onshore India: Please see question 5.1. There is no separate process for obtaining authorisation for the marketing of AIFs in the domestic jurisdiction.

Offshore India: Please see question 5.2. An FME does not require a separate registration/licence to undertake the distribution/placement of various schemes it launches. If an unregulated entity/AIF manager operating in the domestic jurisdiction undertakes the distribution/placement of third-party schemes, it will require a distributor licence from the IFSCA.

5.3 What is the process for obtaining authorisation and how long does this usually take?

Onshore India: Please see question 5.1. SEBI does not regulate distributors of AIFs in India. There are certain restrictions on marketing inherent to the nature of the registration itself which are detailed in question 5.1.

Offshore India: Please see question 5.2. An FME does not require a separate registration/licence to undertake the distribution/placement of various schemes it launches. Registered distributors are regulated by the IFSCA under the CMI Regulations.

5.4 To whom can alternative investment funds be marketed?

Onshore India: In the domestic jurisdiction, AIFs can be distributed to both domestic and foreign investors, including sophisticated and private investors. These may include, among others:

• funds of funds;
• government institutions;
• public sector undertakings;
• private banks;
• insurance companies;
• eligible pension funds;
• global development financial institutions;
• multilateral organisations; and
• high-net-worth individuals.

Indian entities such as banks, insurance companies and pension funds are subject to investment restrictions imposed by their respective sectoral regulators. Therefore, in addition to complying with the AIF Regulations, these entities must ensure that their investments in AIF units are in accordance with the applicable sectoral regulations. The AIF Regulations stipulate that the minimum investment by each investor (other than the manager and its employees) is INR 10 million.

The AIF Regulations also provide that 'accredited investors' and funds with accredited investors making minimum stipulated investments are entitled to certain exemptions.

Offshore India: In the case of AIFs established in GIFT City as venture capital schemes (VCSs) or restricted schemes, there are no stipulations regarding the target investors. However, the FM Regulations stipulate the following minimum investments per investor:

• $150,000 for restricted schemes; and
• $250,000 for VCSs.

The following entities are exempt from this requirement:

• accredited investors;
• deemed accredited investors; and
• employees, directors and partners/directors of the FME.

5.5 What are the content criteria that marketing materials for alternative investment funds must satisfy?

Onshore India: Please see question 5.1. There is no specific regulatory guidance on the content of marketing materials, given the regulatory restrictions on the marketing of AIFs. However, the PPM – as the primary offering document for the AIF – must:

• adhere to the format prescribed by SEBI (applicable to non-large value funds only); and
• include the requisite information/disclosures.

Further, to comply with the private placement norms, all marketing materials and offer documents for AIFs must be:

• clearly marked "For Private Circulation Only"; and
• addressed and delivered only to specifically identified potential investors.

Public advertisements, general solicitations and any form of communication that could be construed as a public offer are strictly prohibited. The offer must not be made to the public at large and care must be taken to ensure that an AIF does not breach the maximum cap on investors (ie, 1,000 investors).

Offshore India: There is no specific regulatory guidance on the content of the marketing materials given the regulatory restrictions on marketing of AIFs in the IFSC. The private placement norms which apply to AIFs in the domestic jurisdiction will also apply to AIFs in GIFT City.

5.6 What other requirements or restrictions apply to marketing materials for alternative investment funds?

Onshore India: Please see question 5.5.

Offshore India: Please see question 5.5. If a registered distributor is undertaking the distribution/placement of third-party schemes that are not subject to private placement restrictions, it should ensure compliance with the Advertisement Code, specified in Schedule II of the CMI Regulations, as follows:

• Advertisements ('Ads') must be:
• • accurate;
  • true;
  • fair;
  • clear;
  • complete;
  • unambiguous; and
  • concise.
• Ads must not contain:
• • false, misleading, biased or deceptive statements based on assumptions/projections; or
  • testimonials or any ranking based on any criteria.
• Ads must not:
• • be so designed as likely to be misunderstood or likely to disguise the significance of any statement; or
  • contain statements which, directly or by implication or by omission, may mislead the client.
• Ads must not carry any slogan that is:
• • exaggerated;
  • unwarranted; or
  • inconsistent with or unrelated to the nature and risk and return profile of the capital market product or service.
• Ads must not be framed to exploit the lack of experience or knowledge of clients.
• Extensive use of technical or legal terminology or complex language and the inclusion of excessive details which may detract the clients should be avoided.
• Ads must contain information which:
• • is timely and consistent with the disclosures made in the PPM created by the issuer/service provider; and
  • explains the characteristics of the capital market product or service.

5.7 Can alternative fund managers from other jurisdictions market alternative investment funds in your jurisdiction without authorisation?

Onshore India: No, the marketing of foreign AIFs to Indian residents is not permitted without authorisation. The Investment Advisers Regulations regulate any 'investment advice' proposed to be offered to Indian residents. Investment advice includes "advice relating to investing in, purchasing, selling or otherwise dealing in securities". Thus, the offshore manager or its group entity will need to seek registration under the Investment Advisers Regulations. Further, Indian residents are subject to the maximum annual cap for amounts that can be remitted outside India for investment purposes – that is, $250,000 per person.

Offshore India: The marketing, distribution and placement of offshore AIFs may be undertaken by a distributor that is registered with the IFSCA under the CMI Regulations.

5.8 Is the appointment of local marketing entities required in your jurisdiction?

Onshore India: There is no mandatory requirement to appoint local marketing entities for AIFs in India. A manager is entitled to market the units of AIFs managed by it.

Offshore India: As above.

5.9 Is it possible to market alternative investment funds to retail investors in your jurisdiction? If so, are there specific requirements?

Onshore India: No, AIFs cannot be marketed to retail investors in India. Only sophisticated investors who meet the minimum investment threshold (INR 10 million) are eligible to invest in AIFs.

Offshore India: Restricted schemes/AIFs can only be marketed to investors who are eligible to subscribe to units of relevant restricted schemes.

6 Investment process

6.1 Do any investment or borrowing restrictions apply to the portfolios of alternative investment funds?

Onshore India:

• Investment restrictions:
• • Category I and II alternative investment funds (AIFs) cannot invest more than 25% of investable funds in an investee company.
  • Category III AIFs can invest maximum 10% of its investable funds in each portfolio company.
• Restrictions applicable to all categories of AIFs:
• • Investments in associates are subject to the prior consent of investors by specified majority.
  • Transactions with associates – including the purchase or sale of investments from/to other AIFs managed/sponsored by manager/sponsor/associates – are subject to the prior consent of investors by a specified majority.
• Borrowing and leverage restrictions:
• • Category I and II AIFs:
  • • There is a general prohibition on borrowing/leverage for making investments or otherwise.
    • Temporary borrowings and borrowing to meet drawdown shortfalls are permitted, subject to conditions.
    • The pledging of holdings of the AIF is not permitted, except in limited cases of specified infrastructure investee companies.
  • Category III AIFs: It is permitted to employ leverage or borrowings with investor consent and subject to maximum cap of two times the net asset value.

Offshore India:

• For open-ended restricted schemes, not more than 25% of the scheme's corpus may be invested in securities of unlisted companies.
• There is no maximum cap on exposure to each investee company for close-ended restricted schemes.
• The FM Regulations, do not impose any borrowing or leverage restrictions.

6.2 Are there any specific legal or regulatory requirements regarding investments in particular assets?

Onshore India: There are no sectoral/asset-related investment restrictions under the AIF Regulations. Specific types of AIFs are subject to special conditions, such as the following.

AIF category	Sub-category	Minimum investment allocation/regulatory requirement
Category I AIFs	Venture capital funds	At least 75% of investible funds must be allocated to: unlisted equity or equity-linked instruments of venture capital undertakings; or companies listed or proposed for listing on small and medium-sized enterprise exchanges or segments.
	Infrastructure funds	Minimum 75% of investable funds to be allocated to: unlisted securities or units; partnership interests in venture capital undertakings, investee companies or special purpose vehicles engaged in infrastructure projects; or units of Category II AIFs investing primarily in such entities.
Category II AIFs	-	Investments to be primarily in unlisted securities and/or listed debt securities (including securitised debt instruments) rated 'A' or below by SEBI-registered credit rating agencies.

Please also refer to other investment restrictions summarised in question 6.1.

Offshore India: Apart from the restrictions set out in question 6.1, a close-ended restricted scheme may invest up to 20% of the corpus in physical assets such as:

• real estate;
• bullion;
• art; or
• any other physical asset as may be specified by the IFSCA

7 Reporting, governance and risk management

7.1 What key disclosure requirements apply to alternative investment funds in your jurisdiction?

Onshore India: Key disclosure requirements for alternative investment funds (AIFs) include (but are not limited to) the following:

• PPM: Among other things, this should disclose details of:
• • the fund structure;
  • the sponsor/manager background;
  • the investment strategy;
  • targeted investors;
  • fees/expenses;
  • risk factors;
  • conflicts of interest;
  • disciplinary history;
  • the valuation methodology; and
  • the governance structure.
• Ongoing disclosures to investors: Periodic reports on:
• • financials;
  • portfolio;
  • risk management;
  • material events; and
  • net asset value (NAV).
• Material changes: Any material change to the fund documents or investment strategy must be promptly disclosed to both the SEBI and investors.
• Performance and complaints: Disclosure of performance benchmarking and investor complaint status must be made in the PPM on an ongoing basis.
• Regulatory reporting: Prompt notification to be made to SEBI for any changes in the PPM and any information which was submitted to SEBI earlier.

Offshore India: Key disclosure requirements for schemes include (but are not limited to) the following.

• PPM: Must include details on:
• • fund structure;
  • management;
  • investment objectives;
  • strategy;
  • fees;
  • risks;
  • conflicts;
  • valuation; and
  • governance.
• Ongoing disclosures to investors: Regular updates to investors on:
• • NAV;
  • portfolio;
  • material events; and
  • changes in fund operations or management.
• Regulatory reporting: Prompt notification must be made to the IFSCA of:
• • material changes;
  • annual audit and valuation reports; and
  • compliance with ongoing disclosure obligations.

7.2 What key reporting requirements apply to alternative investment funds in your jurisdiction?

Onshore India: The reporting framework for AIFs in India is governed by the AIF Regulations and the Master Circular for AIFs dated May 7, 2024 issued by SEBI.

• Regulatory reporting to SEBI:
• • AIF activities must be reported to SEBI quarterly, within 15 days of each quarter's end.
  • At each financial year-end, the manager must submit a compliance test report to the trustee/sponsor, confirming compliance with the AIF Regulations and SEBI circulars.
  • Material changes to the PPM must be reported to SEBI and investors on a consolidated basis within one month of the end of each financial year.
  • AIFs investing overseas must report utilisation, non-utilisation, surrender and divestment of overseas investment limits to SEBI within specified timeframes.
  • AIFs must audit compliance with the PPM and notify the trustee, sponsor and SEBI.
• Reporting to investors: AIFs must:
• • provide investors with periodic reports on investee companies' financials and material risks as per SEBI timelines;
  • disclose the valuation of investee companies and/or NAV;
  • disclose the investor charter and complaint redressal status; and
  • notify investors of material events.

Offshore India:

• Regulatory reporting to the IFSCA: Fund management entities (FMEs) must:
• • prepare an annual report of accounts and an abridged summary for each financial year, submitting both to the IFSCA within four months of the year-end; and
  • share the abridged summary with investors in the same period.
• They must also:
• • furnish an annual account statement for each scheme;
  • report material changes in the AIF to the IFSCA; and
  • disclose asset valuations at specified intervals.
• Reporting to investors: FMEs must:
• • provide periodic disclosures to investors on fund performance, portfolio composition, NAV and asset valuations at specified intervals; and
  • notify investors of any material change in AIF terms.

7.3 What key governance requirements apply to alternative investment funds in your jurisdiction?

Onshore India:

• Trustee oversight: In a trust structure, the external trustee:
• • ensures compliance with the SEBI regulations, the SEBI code of conduct and investor protection provisions; and
  • holds AIF assets in trust for the beneficiaries.
• The trustee:
• • approves key policies and procedures, including risk, conflict and compliance frameworks; and
  • delegates administrative and governance functions to the AIF manager via the investment management agreement.
• Investment committee: Managers may establish an investment committee to approve AIF investment decisions, with members jointly and severally responsible for compliance with the AIF Regulations and fund documents. External members must be disclosed in the placement memorandum or appointed with investor consent. Appointment of external and non-resident individuals requires government approval.
• Board of advisers: This non-statutory body of technical experts, retired civil servants, former regulators, sector specialists and other advisers offers mentorship, strategic guidance, thought leadership, fund positioning and sectoral insights; but it has no legal or fiduciary responsibility for investment decisions or fund operations.
• Advisory committee: Select investors, nominated based on ticket size, strategic value or fund tenure:
• • serve as an investor consultative body;
  • review and approve conflicts of interest;
  • review key fund governance changes; and
  • act as a sounding board for the manager on strategic decisions affecting investor interests.

Offshore India: The governance framework prescribed for a typical AIF in India can be implemented for schemes launched in GIFT City, with the exception that there is no distinct concept of a sponsor under the FM Regulations; nor is any obligation directly cast on investment committees under the FM Regulations.

7.4 What key risk management requirements apply to alternative investment funds in your jurisdiction?

Onshore India: Managers must have written policies to identify, monitor and mitigate conflicts of interest, disclosing them to investors as they arise. The AIF's PPM must detail actual and potential risk factors related to the AIF and its investments. All AIFs must ensure transparency by periodically disclosing financial, risk management, operational, portfolio and transactional information to investors. At least annually, within 180 days of year-end for Category I and II AIFs and 60 days for Category III AIFs, AIFs must report to investors on the following:

• financial information of investee companies; and
• material risks and their management at the fund and/or investee company level, which may include:
• • concentration risks;
  • foreign exchange risks;
  • leverage risks;
  • realisation risks;
  • strategy risks;
  • reputation risks; and
  • extra-financial (including environmental, social and governance) risks.

Category III AIFs using leverage must maintain an independent risk management function that is appropriate to the fund's size, complexity and risk profile. Category III AIFs, which employ leverage, must maintain an independent risk management function commensurate to the size, complexity and risk profile of the AIF.

Offshore India: FMEs must appoint fiduciaries (board, partners or trustees) who meet the fit and proper criteria and comply with the FM Regulations' Code of Conduct, to ensure risk mitigation. The PPM must disclose actual and potential risk factors arising from investment in or by the scheme. FMEs must maintain sound risk management systems and adequate internal controls, including for outsourced functions, to protect client and investor interests.

8 Tax

8.1 How are alternative investment funds treated for tax purposes in your jurisdiction?

Onshore India: Category I and Category II alternative investment funds (AIFs) are tax transparent (ie, pass-through for tax purposes). Hence, there is no tax at the fund level. Capital gains, dividends and interest income are taxed in investors' hands directly. However, business income is taxed at the fund level. Category III AIFs do not enjoy tax transparent status.

Offshore India: Category I and Category II AIFs in IFSC are taxed similarly to Category I and II AIFs in India. GIFT AIFs may also claim a 100% deduction on business income for 10 consecutive assessment years (out of 15).

Category III AIFs in the IFSC also lack statutory pass-through status and are taxed at the AIF level based on their structure. Category III AIFs likewise enjoy the aforementioned tax holiday on income.

8.2 How are alternative investment fund managers and advisers treated for tax purposes in your jurisdiction?

Onshore India: Management services provided by an AIF manager to the AIF constitute the 'supply of services' under the Central Goods and Services Tax Act, 2017 ('CGST Act'), which broadly defines 'supply' to include all forms of supply of goods, services or both made for consideration by a person in the course or furtherance of business. Management fees are thus subject to goods and services tax ('GST') at the rate of 18%.

Offshore India: Management services provided by an AIF manager to the AIF constitute the 'supply of services' under the CGST Act. However, under the Integrated GST Act, 2017, 'zero-rated supply' includes the supply of goods or services to a special economic zone (SEZ) developer or SEZ unit. Hence, the supply of management services by fund management entities is regarded as zero-rated supply and is exempt from GST.

8.3 How are alternative investment fund investors treated for tax purposes in your jurisdiction?

Onshore India: Under Indian tax law, a person's tax liability depends on their residential status in a given financial year (1 April to 31 March) as per the ITA. Indian tax residents are taxed on worldwide income, subject to exclusions, exemptions and treaty reliefs; while non-residents are taxed only on income received, deemed received, accrued or deemed accrued in India. Thus, non-resident AIF investors are taxed in India only on Indian-sourced income, including investments made in India, unless specifically exempt under the ITA.

Capital gains, dividends and interest income in the hands of foreign investors will be subject to withholding tax at rates applicable under the ITA or an applicable double taxation avoidance agreements which is more beneficial to the investor. The tax must be withheld at the time of the distribution or credit of income, whichever is earlier. Foreign investors must obtain a permanent account number (PAN) from the Indian tax authorities to claim the benefits of a tax treaty.

Offshore India: The residential status and source of income implications are the same as above.

Investors in a GIFT AIF are exempt from the requirement to obtain a PAN, subject to the satisfaction of conditions.

8.4 What effect do international laws such as the US Foreign Account Tax Compliance Act and international standards such as the Common Reporting Standard have in your jurisdiction?

Onshore India: India has implemented the US Foreign Account Tax Compliance Act ('FATCA') and the CRS, requiring AIFs to:

• conduct due diligence;
• report investor information; and
• comply with global tax standards.

AIFs as 'reporting financial institutions' must collect and report information on investors who are tax residents of other countries, including details of their identity and tax residency. The objective is to:

• prevent tax evasion; and
• ensure compliance with international standards for transparency and information exchange.

Failure to comply with FATCA and CRS requirements can result in penalties and higher withholding of tax for investors that fail to make relevant FATCA declarations.

Offshore India: IFSCA (Anti-Money Laundering, Counter-Terrorist Financing and Know Your Customer) Guidelines, 2022 lay down reporting requirements under FATCA and the CRS for AIFs in the IFSC. These include:

• registration as 'reporting financial institutions' on the e-filing portal;
• the submission of online reports or nil income tax returns digitally signed by a designated director;
• referencing schemes prescribed by the Central Board of Direct Taxes ('CBDT');
• the development of an IT framework to conduct due diligence and maintain records under the Income Tax Rules;
• the establishment of audit system to ensure compliance with the Income Tax Rules;
• the constitution of a high-level monitoring committee under a designated director or equivalent functionary to oversee adherence; and
• ongoing compliance with updated CBDT instructions, guidance notes, and press releases, including:
• • the latest guidance note on FATCA and the CRS; and
  • the press release on the closure of financial accounts under the Income Tax Rules.

8.5 What preferred tax strategies are typically adopted in the alternative investment fund context?

Onshore India: For cross-border AIFs, the manager may use an appropriate intermediate vehicle set up in a tax-favourable jurisdiction to reduce the overall tax impact for offshore investors.

Offshore India: GIFT City's 100% tax holiday and reduced withholding tax rates (in certain situations) make it an attractive jurisdiction to invest into India or to set up feeder vehicles for pooling into onshore AIF.

GIFT City aids in the optimisation of returns through the use of leverage/borrowings at the GIFT AIF level.

9 Trends and predictions

9.1 How would you describe the alternative investment fund landscape and prevailing trends in your

As of March 2025, India's alternative investment funds (AIFs) industry had scaled remarkably, with total commitments exceeding $160 billion – a five-year compound annual growth rate of over 25%, making AIFs among the fastest-growing investment avenues for sophisticated investors. Total AIF investments had reached INR 5.38 trillion by March 2025 – a 32% year-on-year increase from INR 4.07 trillion in 2024 – and the market demonstrated consistent growth even during the COVID-19 pandemic. There are over 1,600 SEBI AIFs – a 27-fold rise from 42 funds in March 2013 – reflecting regulatory maturity and growing investor confidence in alternative strategies.

Despite GIFT City being of recent vintage (FM Regulations were introduced in 2022), it has experienced tremendous growth, with:

• cumulative commitments of $22.11 billion raised;
• cumulative funds raised increased to $10.5 billion; and
• cumulative investments to the tune of $11.27 billion.

Of the total investments made from GIFT City, about 85% of investments have been directed towards India.

The rise of large-value funds (LVFs) reflects demand for higher ticket sizes and more customised opportunities, with the regulators focused on developing new regimes for accredited investors. Technology (including AI and digital infrastructure), real estate and late-stage private credit are the most favoured strategies. The market is adapting to longer exit cycles through secondary transactions and continuation funds, providing liquidity to investors. New frameworks for co-investment and third-party fund management are being introduced, with a focus on global best practices. Overall, the Indian AIF ecosystem is becoming more institutionalised, transparent and attractive to a diverse range of sophisticated investors.

9.2 Are any new legal or regulatory developments anticipated which will impact on alternative investment funds or alternative investment fund managers in your jurisdiction?

Onshore India: One major reform being considered by SEBI is 'accredited investor-only' funds, which would benefit from a light-touch regulatory framework exempting them from various requirements under the AIF Regulations. SEBI is also proposing to make LVFs less restrictive. These reforms are aimed at unlocking domestic pools of capital and deepening their participation in the AIF industry. The newly introduced co-investment vehicle framework under the AIF Regulations will unshackle managers and embolden them to tap into larger ticket sizes and more complex investment opportunities, especially in real assets.

Offshore India: The IFSCA continues to take strides in making GIFT City globally competitive and attractive for setting up fund management entities and AIFs. It is exploring introducing a variable capital company regime which will provide a robust corporate framework for funds in India. The relocation of funds into the IFSC (about 24 funds thus far) demonstrates the confidence of offshore managers in the IFSCA's regulatory oversight. The co-investment regime and third-party fund management could attract net new investors into India. Tax holidays and reduced withholding taxes will also see traditional 'outside-in' investors (eg, credit funds/institutional lenders/group financing companies/global fulfilment centres) establishing a presence in GIFT City, as it makes an attractive commercial proposition.

9.3 Do you envisage any particular industry strategy of attracting particular interest in the next 12 months?

In addition to the developments outlined in questions 9.1 and 9.2, we may see the rise of bespoke fund management arrangements (managed accounts or portfolio management/investment advisory arrangements) where limited partnerships (LPs) with large ticket sizes seek customised strategies. There may also be a surge in M&As involving fund managers, as LPs are progressively seeking a share in ownership and/or carry. It is also expected that more funds of funds will enter the market as Indian high-net-worth and ultra-high-net-worth individuals seek diversification of risk. With several AIFs entering their end of tenure phase, newer insurance products may be tested to ensure swift exits and final distributions.

Real estate and infrastructure in India face a credit/financing gap. Blended finance to attract private capital through sponsor/anchor investor credit support is one emerging strategy, but it is yet to receive the necessary regulatory support under the AIF Regulations.

The strategic investment fund regime introduced by SEBI under the Mutual Fund Regulations, 1996 will also disrupt the alternate assets industry, as these funds will be competing with hedge funds. A white paper submitted to SEBI by the Association of Mutual Funds recommends the creation of a voluntary retirement scheme to be managed under the Mutual Funds Regulations, 1996 similar to the 401(k) regime in the United States. This could unlock long-term capital for the Indian economy and provide structured retirement security to a wider segment of the Indian population.

There is growing interest in setting up outbound feeders in GIFT City to leverage the growing wealth of India's urban classes to invest in global, regional or (offshore) country /Asia-focused funds.

10 Tips and traps

10.1 What are your top tips for the smooth establishment and management of an alternative investment fund in your jurisdiction, and what specific challenges would you note?

Top tips:

• Well begun is half done. Structure, strategy and compliance are key pillars. Adequate attention at the planning stage is required, including early engagement with regulators if necessary.
• Due care should be taken at the documentation stage. Signing up obligations that would ultimately make the administration of the alternative investment fund (AIF) or deal making extremely challenging should be avoided.
• Hiring the right talent for the investment team and support team is vital. Having a sounding board through committees and board of advisers is also important for new managers.
• Adequate insurance cover and robust risk monitoring framework are also essential. Changes in the legal and regulatory framework, shifts in the geopolitical landscape and climate change may have a significant impact on investee companies and consequently on returns.

Potential pitfalls:

• The application process involves complex paperwork and various stages. Plan well and ensure tight project management and supervision to deliver results in a timely manner.
• The evolving regulatory landscape requires managers to establish and adapt processes to ensure compliance (eg, the recent SEBI circular for AIFs to ensure that their digital platforms comply with the Rights of Persons with Disabilities Act).
• Talent retention can prove challenging without appropriate long-term incentive plans, including carry participation, to ensure that the interests of the team are aligned with those of the AIF.
• Fund raising can also be problematic. Compliance with placement restrictions in each home jurisdiction of target investors is cumbersome, time consuming and expensive. Hiring best placement agents may not yield the desired results.
• Competition in terms of deal opportunities can lead to price/bidding wars and inaccurate valuations that could eventually impact on returns.
• Liquidation challenges may arise if AIFs are stuck with underperforming illiquid investments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.